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Premium player in lubricants business…
We met the management of Castrol India to understand in detail the
company’s business and strategy. Castrol is the largest private player in
the lubricants business mainly catering to the automotive and industrial
segments. The company has a market share (in value terms) of 18-22% in
the domestic lubricants market. Due to its strong brand presence, Castrol
commands a price premium of 15-30% compared to its competitors like
Gulf Oil Lubricants, Tide Water, IOC, BPCL, HPCL, etc. British Petroleum
owns 71% stake in Castrol due to which Castrol benefits from exclusive
tie-ups with original equipment manufacturers (OEM) due to global
commitments of automobile companies with BP. The company gets
major revenues from the automotive segment (~90%) with majority of
revenues from the car segment (~40%) followed by ~30% revenues
from the motorcycle segment and ~30% from the commercial vehicles
segment. The industrial segment constitutes only ~10% of total
revenues. In the last 10 years, the topline, PAT have grown at 8.9%,
14.8% CAGR, respectively. However, due to adverse economic conditions
and slowdown in auto sales, revenue, PAT in the last three years have
recorded growth at 2%, 1.8% CAGR, respectively. With an improvement
in auto sales and industrial growth, Castrol is expected to grow faster.
Strong distribution network & focus on branding
The company leverages its strong distribution network through Castrol
Bike Point and Castrol Pit Stop along with the bazaar segment consisting
of workshops, garages, etc. Castrol spends ~7% of its revenues on
advertising and branding of its products. On the distribution front, the
main focus has been on the mobility segment, which has increased over
the years with the increase in number of vehicles. In the automotive
business, major revenues are from the bazaar segment. The company’s
focus has been on retaining customers and its next push is focused on
the rural market where it is growing 10% YoY. Castrol plans to increase
its number of rural dealers to increase its market share in the two-wheeler
segment. In urban areas, it has 40% market share in the top 10 cities.
Decline in crude oil prices and improvement in volumes
With the decline in crude oil prices, raw material costs (base oil prices)
are expected to come down for Castrol, aiding the improvement in
margins. With expectations of an increase in auto sales, the company also
expects an increase in its volumes. Castrol is currently trading at 40x
CY13 EPS with healthy return ratios of 87.4% (RoCE) and 67.7% (RoE).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Premium player in lubricants business…
We met the management of Castrol India to understand in detail the
company’s business and strategy. Castrol is the largest private player in
the lubricants business mainly catering to the automotive and industrial
segments. The company has a market share (in value terms) of 18-22% in
the domestic lubricants market. Due to its strong brand presence, Castrol
commands a price premium of 15-30% compared to its competitors like
Gulf Oil Lubricants, Tide Water, IOC, BPCL, HPCL, etc. British Petroleum
owns 71% stake in Castrol due to which Castrol benefits from exclusive
tie-ups with original equipment manufacturers (OEM) due to global
commitments of automobile companies with BP. The company gets
major revenues from the automotive segment (~90%) with majority of
revenues from the car segment (~40%) followed by ~30% revenues
from the motorcycle segment and ~30% from the commercial vehicles
segment. The industrial segment constitutes only ~10% of total
revenues. In the last 10 years, the topline, PAT have grown at 8.9%,
14.8% CAGR, respectively. However, due to adverse economic conditions
and slowdown in auto sales, revenue, PAT in the last three years have
recorded growth at 2%, 1.8% CAGR, respectively. With an improvement
in auto sales and industrial growth, Castrol is expected to grow faster.
Strong distribution network & focus on branding
The company leverages its strong distribution network through Castrol
Bike Point and Castrol Pit Stop along with the bazaar segment consisting
of workshops, garages, etc. Castrol spends ~7% of its revenues on
advertising and branding of its products. On the distribution front, the
main focus has been on the mobility segment, which has increased over
the years with the increase in number of vehicles. In the automotive
business, major revenues are from the bazaar segment. The company’s
focus has been on retaining customers and its next push is focused on
the rural market where it is growing 10% YoY. Castrol plans to increase
its number of rural dealers to increase its market share in the two-wheeler
segment. In urban areas, it has 40% market share in the top 10 cities.
Decline in crude oil prices and improvement in volumes
With the decline in crude oil prices, raw material costs (base oil prices)
are expected to come down for Castrol, aiding the improvement in
margins. With expectations of an increase in auto sales, the company also
expects an increase in its volumes. Castrol is currently trading at 40x
CY13 EPS with healthy return ratios of 87.4% (RoCE) and 67.7% (RoE).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK
http://content.icicidirect.com/mailimages/IDirect_CastrolInd_MgmtNote.pdf
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